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Aon Pension Tracker reports Canadian defined benefit pension plans’ financial health continues to improve in Q1 2021

TORONTO, March 31, 2021 – Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, announced today that the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index increased from 89.4% to 94.8% during the past three months as of March 30, according to the Aon Pension Risk Tracker.

The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for the companies in the S&P/TSX Composite Index with defined benefit (DB) plans. The tool uses Aon’s Risk Analyzer platform, which allows plan sponsors to track their individual plan’s funded status on a daily basis. Versions of the Pension Risk Tracker are also available for the S&P 500 in the U.S. and for a number of indices in the UK.

Key Findings:

  • During the first quarter of 2021, the aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite index increased from 89.4% to 94.8% according to the Aon Pension Risk Tracker.
  • Pension assets lost value by 2.3% over Q1 due to negative returns on fixed income assets, partially offset by strong equity market performance.
  • The quarter-end long-term Government of Canada bond yield increased 74 basis points (bps) relative to the last quarter-end rate while credit spreads narrowed by 2 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.34% to 3.06%. A majority of the plans in Canada are still exposed to interest rate risk. Therefore, the funded ratio increased since the decrease in pension liability caused by the increase in interest rates was larger than the reduction in asset values.

“Equity market performance stayed solid in the first quarter of 2021 following a very strong fourth quarter”, said Erwan Pirou, Canada Chief Investment Officer, Retirement Solutions, Aon. “Combined with a sharp increase in yields across maturity, with the 30-year bond yield reaching its highest level of the past two years, this proved to be very favorable conditions for the financial health of pension plans. We continue to see interest from plan sponsors to diversify the equity risk by allocation to real assets and opportunistic strategies.”

“Funded positions continued their upward trajectory in the first quarter and accelerating vaccination campaigns have bolstered confidence in an economic recovery. This growing confidence has increased yields over the quarter while stocks have also continued to perform well. Both factors have led to increasing funded ratios”, said Nathan LaPierre, Partner, Retirement Solutions, Aon. “The second quarter will be a test case for vaccinations and the ensuing economic recovery. The United States will have a large portion of the population vaccinated in the second quarter – and the question is how effectively will that halt the spread of the virus and fuel the economic recovery?”

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